Potential Upside for C3.ai Despite Early 2025 Struggles

Enterprise artificial intelligence (AI) software provider C3.ai (AI -0.93%) has started 2025 on a challenging note, with its shares declining by 10% this year. Interestingly, there hasn’t been any specific news from the company to explain this drop.

However, this situation may present a chance for investors to consider adding a potentially lucrative AI stock to their portfolios. Here, we explore the reasons that suggest C3.ai may deliver impressive returns in the long term and throughout 2025.

C3.ai could see significant growth over the next year

Although C3.ai has had a rough start to 2025, analysts have set a consensus 12-month price target for the stock at $40, indicating a potential 29% increase from its current price. Given the company's recent growth trends, it would not be surprising to see it achieve these gains in the coming months.

C3.ai has experienced a notable acceleration in growth, with revenue for the first six months of fiscal 2025 reaching $181.5 million, a 25% increase year-over-year. This shows significant improvement compared to the 14% growth recorded during the same period last year.

The improved growth can largely be attributed to the rising demand for C3.ai's generative AI solutions. The company provides clients with applications applicable across various sectors, a robust software platform to create custom AI applications, and tools to deploy generative AI assistants which enhance operational productivity.

C3.ai's software is accessible through major cloud platforms like Google Cloud, Microsoft Azure, and Amazon Web Services. Moreover, the company has strengthened its partnerships with these giants. A recent strategic alliance announced with Microsoft in November 2024 aims to broaden the reach of its generative AI products.

Furthermore, during a conference call in December 2024, C3.ai's management indicated that their existing clients are expanding their contracts. The company has also begun to attract attention from U.S. government agencies, presenting a new growth opportunity as this sector is expected to adopt AI technology at a compound annual growth rate of 20% through 2033, potentially leading to $78 billion in yearly revenue within that timeframe.

In addition, the global market for generative AI software is projected to reach $52 billion in annual revenue by 2028, a notable leap from $5.1 billion in 2023. C3.ai is in a prime position to benefit from this growth, with expected revenue of $388 million for the current fiscal year, which marks a 25% increase over last year.

Analysts believe that C3.ai can sustain its positive trajectory and maintain double-digit revenue growth in the coming fiscal years.

Valuation reveals investment potential

The recent dip in C3.ai’s stock price has resulted in a sales multiple of 11, which is relatively more affordable than the 14 times sales it was trading at just a month ago.

This current sales multiple is close to its five-year average of 10. Considering its expected growth in the coming years, C3.ai can justify its current valuation, which is slightly above the U.S. technology sector's average of 8. If C3.ai holds a price-to-sales ratio of 10 after three years while generating $553 million in revenue by fiscal 2027, its market capitalization could soar to $5.5 billion, representing a 37% growth from today’s levels.

Furthermore, as analysts continue to elevate their growth predictions for C3.ai, the anticipated rapid development of the market in which the company operates implies that even greater gains could be within reach. The market may also reward C3.ai with a higher sales multiple if it exceeds growth expectations.

In summary, investors aiming to diversify their portfolios with AI stocks might want to pay close attention to C3.ai. With its accelerating growth and comparatively attractive valuation against well-known peers, it stands as a compelling investment option at its current price point.

C3.ai, AI, Stock